Do you understand your duties as a director?

When launching and growing your tech start-up, it’s important to remember your duties as a director – not only to avoid potentially costly breaches, but also to establish the foundations for successful trading.

However exciting the challenge of developing your start-up and the technology that underpins it is, as a company director you have important responsibilities that also deserve attention. Understanding these responsibilities from the outset can help to avoid problems down the line.

Your duties as a company director are set out in the Companies Act 2006. This establishes that company directors have some general duties that apply in all circumstances. The duties encourage sound business practice. Failure to act in accordance with them could potentially result in the payment of damages or compensation, or in transactions being rescinded.

Promoting the success of the company

All directors of solvent companies are required to act in good faith to promote the success of the company. In fulfilling this duty you are expected to consider a range of factors, including:

the consequences of any decisions;

the interests of the company’s employees;

the need to promote the company’s business relationship with suppliers, customers and other parties;

the impact of the company’s operations on the community and the environment;

the company’s reputation for high standards of business conduct;

the need to act fairly as between members of the company.

Duty to exercise reasonable care, skill and diligence

Every company director must also exercise ‘reasonable care, skill and diligence’. The law explains this as meaning the care, skill and diligence that would be exercised by a reasonably diligent person with:

the general knowledge, skill and experience that may reasonably be expected of a person carrying out the director’s functions in the company;

the general knowledge, skill and experience that the director has.

You must perform your role as director to a high standard, to the best of your ability and accept the responsibilities and expectations associated with the role.

Conflicts of interest

The law requires company directors to avoid conflict of interests and you should avoid putting yourself in situations where your loyalties might be divided. You should also consider the positions and interests of your family in case of potential conflicts.

You must inform your fellow directors of any interest you may have in a proposed transaction or arrangement the company is considering. If you disclose a conflict of interest, there is a process to authorise you to continue to act. It is also possible to address this issue in your company’s Articles of Association.

Note that your duty to avoid conflicts of interest continues after you cease to be a director in relation to the exploitation of any property, information or opportunity that you became aware of in your position as a director.

The Companies Act also establishes that directors must not accept benefits from third parties – people other than their company (or a person acting on behalf of their company). Third party benefits might be perceived as giving rise to conflicts of interest, offered to you because you are a director, or for acting in a certain way as a director.

Independent judgment

The powers you have as a director (and the purpose of those powers) will be set out in your company’s Articles of Association.

Your powers as a director must not be controlled by others. You must always exercise your own independent judgment to make final decisions, but seek advice where necessary.

To find out more about the responsibilities of company directors, please contact Mariangela Nonnis.

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